US sues Apple, publishers over prices

E-BOOK PRICE-FIXING:While HarperCollins, Simon & Schuster and Hachette have settled with the Justice Department, Macmillan, Penguin and Apple plan to fight on

Reuters,
Washington and San Francisco

A digital book is displayed on an Apple Inc iPad for a photograph in New York on Wednesday.

Photo: Bloomberg

The US government sued Apple Inc and five publishers, saying they conspired to fix the prices of electronic books, and reached a settlement with three of the publishers that could lead to cheaper e-books for consumers.

The US Justice Department accused Apple of colluding with the five publishers as the Silicon Valley giant was launching its iPad in early 2010 and was seeking to break up Amazon.com’s low-cost dominance in the digital book market.

Because of the agreement, electronic book prices went up an average of US$2 to US$3 in a three-day period in early 2010, according to the Justice Department lawsuit filed in the US District Court for the Southern District of New York on Wednesday.

The settlement reached with three of the publishers will allow Amazon to resume discounting books and will terminate the “most favored nation” contracts with Apple.

Amazon said in response to the settlement that it plans to lower prices on books associated with its Kindle e-reader.

The pact also requires the publishers to wait two years before entering into any “agency model” agreements that prevent retailers from offering discounts on e-books.

James McQuivey, a media analyst at Forrester Research, said e-book prices were destined to come down, even without a Justice Department settlement, because publishers themselves have been experimenting with discounting to stimulate sales.

“It essentially will accelerate the reversion back to the sub-US$10 prices that Amazon had already established as the standard,” McQuivey said.

The e-book market has boomed in recent years. Sales grew from US$78 million in sales in 2008 to US$1.7 billion last year, according to Albert Greco, a book-industry expert at the business school of Fordham University.

A Pew Research Center survey released last week found that one in five US adults read an e-book in the past year.

Apple had no comment about the federal lawsuit.

A person familiar with the matter said Apple has not been part of the settlement negotiations.

In a recent court filing, in a private class action suit on the same issue, Apple said it had not colluded with the publishers, but “individually negotiated separate vertical agreements with each of the publishers.”

Macmillan CEO John Sargent released a defiant letter to the book industry on Wednesday saying the publisher did not collude.

Sargent said Macmillan had been in discussions with the Justice Department for months, but the settlement terms were “too onerous.”

Hachette said in a statement that it reluctantly agreed to join the federal and state settlements, but it “was not involved in a conspiracy to illegally fix the price of eBooks.”

Penguin CEO John Makinson said his company did nothing wrong and was alone among the publishers in not holding any settlement discussions.

HarperCollins, which also settled, denied any wrongdoing. Simon & Schuster declined to comment.